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| FGMG.OB > SEC Filings for FGMG.OB > Form 10-Q on 14-Nov-2011 | All Recent SEC Filings |
14-Nov-2011
Quarterly Report
This Form 10-Q may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements are identified by words such
as "anticipate," "believe," "estimate," "expect," "intend," "predict,"
"project," and similar expressions. When the Company makes forward-looking
statements, it is basing them on management's beliefs and assumptions, using
information currently available. These forward-looking statements are subject to
risks, uncertainties and assumptions, including but not limited to, risks,
uncertainties and assumptions related to the following:
· changes in legislation;
· federal and state regulations;
· general economic conditions;
· competitive factors and pricing pressures;
· dependence on the services of key personnel;
· interest rates;
· risks associated with acquisitions;
· uncertainties associated with possible hurricanes;
· and uncertainties related to the State of Florida negotiations with the American Indian tribes who operate casinos.
If one or more of these or other risks or uncertainties materialize, or if the underlying assumptions prove to be incorrect, actual results may vary materially from those anticipated. Any forward-looking statements in this Form 10-Q or the documents incorporated herein by reference reflect management's current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the Company's operations, results of operations, growth strategy and liquidity. The factors specifically consider the factors identified in the Company's Form 10-K including under the caption "Risk Factors" should be considered.
References to "we", "us", "our", "the registrant", "Florida Gaming " and "the Company" in this quarterly report on Form 10Q shall mean or refer to Florida Gaming Corporation, unless the context in which those words are used would indicate a different meaning.
The Company is currently in construction of the casino addition to the Miami Jai-Alai fronton. The addition will be approximately 35,000 square feet and is joined with the existing facility to provide approximately 45,000 square feet of casino floor as well as "back of house" support offices. The casino floor will accommodate more than 1,000 slot machines, a card room, bars and restaurants, adding to the existing live jai-alai and simulcasting operation.
On January 6, 2009, Florida Gaming Corporation agreed to acquire a total of 10.982 acres of property from Miami-Dade County in exchange for a right-of-way of .492 acres to be used by the Miami-Dade Metro Rail, an overhead light rail system. The total purchase price of the acreage (10.982) was $16,742,145. On April 6, 2009 Florida Gaming completed Phase 1 of its two-phase acquisition of the 10.982 acres of property from Miami-Dade County.
On June 16, 2011, the Company completed Phase Two of the purchase of the approximately 8.7 remaining acres for $13,393,716. Phase 2 was to close no later than 60 days after the United States Corps of Engineers released the property free and clear of environmental contamination. The Corp of Engineers released the property free and clear of environmental contamination and on June 16, 2011, the Company and the County consummated the final closing on the remaining 8.67 acres of the undeveloped property. At the final closing, the Company made a down payment of $1,339,371, representing 10% of the purchase price of the remaining 8.67 acres, and the County issued a new promissory note for $12,054,344 (the "Final Note") representing the remaining amount owed by the Company on the 8.67 acres of Undeveloped Property which were the subject of the Final Closing. The Note is for 15 years, with an interest rate of 7.25%. The Company will defer payments until the earlier of September 15, 2012, or the date upon which slot machine operations are initiated by the Company. A lump sum payment shall be due at the close of Initial Deferred Payment Period (Refer to 8-K filed July 21, 2011)
The agreement required the street closure resolutions to be presented to the County Board as a condition to the final closing, the rejection of which resolutions had the potential of decreasing the purchase price of the undeveloped property. In accordance with the agreement, the street closure resolutions were presented to the county board before the final closing, and the county board approved the street closure resolutions on July 7, 2011. Because the county board adopted the street closure resolutions and there was no mayoral veto by July 17, 2011, there was no adjustment to the purchase price.
Following the county board's vote to close 37th Avenue, the Company is required to pay up to $1,000,000 for remediation of 36th Avenue. In August, 2011, the Company paid $570,000 and the Company has accrued the remaining $430,000. If within 36 months of this vote the county determines a need to expand 36th Avenue, then the Company will be required to dedicate a 20-foot wide by 812-foot long strip of the Undeveloped Property to accommodate an 80 foot right-of-way (the "Expansion Easement") which may, at the County's sole discretion, be constructed in the future. The Company would also be required to pay for such street expansion to the extent of $4,700,000 through incremental draw-downs as described in the Settlement Agreement. On June 16, 2011, the Company granted a right-of-way deed representing the Expansion Easement which will be held in escrow until such time as the County Board votes to expand 36th Avenue.
These actions allowed Miami Jai-Alai to grow from 8.9 acres to approximately 21 acres thereby accommodating any potential future build-out. This allows Miami Jai-Alai to virtually enclose its casino area and provide a controlled, safe and well illuminated facility.
Critical Accounting Estimates
The Company's Condensed Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires the Company to
make estimates and judgments, and select from a range of possible estimates and
assumptions, that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reported
period.
On an on-going basis, the Company evaluates its estimates, including those related to allowances for doubtful accounts, accounts receivable, inventory allowances, asset lives, the recoverability of other long-lived assets, including property and equipment, goodwill and other intangible assets, the realization of deferred income tax assets, remediation, litigation, income tax and other contingencies. The Company bases its estimates and judgments, to varying degrees, on historical experience, advice of external specialists and various other factors it believes to be prudent under the circumstances. Actual results may differ from previously estimated amounts and such estimates, assumptions and judgments are regularly subject to revision.
The policies and estimates discussed below are considered by management to be critical to an understanding of the Company's financial statements because their application requires the most significant judgments from management in estimating matters for financial reporting that are inherently uncertain.
The Company presents accounts receivable, net of allowances for doubtful accounts, to ensure accounts receivable are not overstated due to uncollectibility. The allowances are calculated based on detailed review of certain individual customer accounts, historical rates and an assessment of the overall economic conditions as well as the aging of the accounts receivable. In the event that the receivables become uncollectible after exhausting all available means of collection, the company will be forced to record additional adjustments to receivables to reflect the amounts at net realizable value. The effect of this entry would be a charge to income, thereby reducing its net profit. Although the company considers the likelihood of this occurrence to be remote, based on past history and the current status of its' accounts, there is a possibility of this occurrence.
The Company provides an allowance for doubtful accounts equal to estimated uncollectible amounts. The Company's estimate is based on a review of the current status of receivables. The Company had no allowance for doubtful accounts for the quarters ended September 30, 2011 and September 30, 2010.
In connection with losses incurred from natural disasters, insurance proceeds are collected on existing business interruption and property and casualty insurance policies. When losses are sustained in one period and the amounts to be recovered are collected in a subsequent period, management uses estimates to determine the amounts that it believes will be collected. So far the Company's estimates have proved to be reasonable.
The Company evaluates the carrying value of its real estate development and other long-lived assets, annually under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 360, "Plant, Property, and Equipment" and ASC Topic 970 "Real Estate." Long-lived assets, including property, plant and equipment, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in relation to the operating performance and future undiscounted cash flows of the underlying assets. Adjustments are made if the sum of expected future cash flows is less than book value. Based on management's assessment of the carrying values of long-lived assets, no impairment reserve had been deemed necessary as of September 30, 2011.
Revenue is derived from acceptance of wagers under a pari-mutuel wagering system. The Company accepts wagers on both on-site and ITW events. On-site wagers are accumulated in pools with a portion being returned to winning bettors, a portion paid to the State of Florida, and a portion retained by the Company. ITW wagers are also accepted and forwarded to the "host" facility after retention of the Company's commissions. The Company recognizes revenue from gaming operations in accordance with ASC Topic 605 which requires revenues to be recognized when realized or realizable and earned. Revenues derived from gaming operations including: mutuel, admission, program, food and beverage, card room, and other revenues are collected shortly before the earning events take place. The Company recognizes revenues from the Company's real estate operations in accordance with ASC Topic 360-20, and sales are generally recognized when consummated , which is upon the closing of the sale, unless the down payment is insufficient to accrue the revenue.
The Company's policy for unclaimed winning tickets follows the requirements as set forth by the State of Florida. Abandoned tickets are winning tickets that remain uncashed for a period of one year. The value of the abandoned tickets escheat to the state. These funds are deposited into the State School Fund for support and maintenance of Florida's public schools. During the first nine months of 2011, unclaimed winnings totaled $67,688 , compared to unclaimed winnings totaling $123,718 for the same period in 2010.
Competition
The gaming industry is highly competitive. Many gaming companies have
substantially greater financial resources and larger management staffs than the
Company. Because of the growing popularity and profitability of gaming
activities, competition is significantly increasing. The Company competes for
customers with other forms of legal wagering, including video poker gaming in
non-casino facilities, charitable gaming, pari-mutuel wagering, state lotteries,
Indian casinos, and cruise ships.
Further expansion of gaming opportunities not related to the pari-mutuel industry could also significantly and adversely affect the Company's business. In particular, the expansion of casino gaming in Miami-Dade and Broward Counties which is near the geographic areas from which the Company attracts or expects to attract a significant number of its customers could have a material adverse effect on the Company's business. The Company expects that it will experience significant competition as the emerging casino industry matures. The Company is now competing with Calder Casino, a slot facility in Florida adjacent to Calder Race Course, which opened on January 22, 2010 with approximately 1,200 slot machines and Flagler Dog Track reopened in October 2009 as Magic City Casino with 700 Las Vegas-style slot machines.
The Company also faces competition from gaming companies that operate on-line and Internet-based gaming services. These services allow patrons to wager from home on a wide variety of sporting events. Unlike most on-line and Internet-based gaming, companies, the Company may require significant and ongoing capital expenditures for both its continued operation and expansion. The Company also could face increased costs in operating business compared to these gaming companies. The Company cannot offer the same number of gaming options as on-line and Internet-based gaming companies. In addition, many on-line and Internet gaming companies are based off-shore and avoid regulation under state and federal laws. These companies may divert wagering dollars from legitimate wagering venues. Competition in the gaming industry is likely to increase due to limited opportunities for growth in new markets. The Company's inability to compete successfully with these competitors could have a material, adverse affect on its business.
Under SB 622, the Seminole tribe gained the exclusive right to have blackjack and other table games at three Broward County casinos and two others in Imokalee and Tampa. All seven tribal casinos also would be able to keep operating Las Vegas-style slot machines. Other portions of Chapter 2009-170 Laws of Florida, purports to permit Hialeah Race Course, located approximately 4 miles from Miami Jai-Alai, to open as a horse facility and operate slot machines after two consecutive years of quarter horseracing.
Jai-Alai Industry
The jai-alai industry live handle (money wagered) generally has declined in the
last several years, due to increased gaming competition such as casino gaming in
Broward and Miami-Dade County, Indian Casino Gaming, gambling cruise ships, and
the State of Florida lottery. Also, competition in the sports/entertainment area
has increased significantly due to more professional sports teams in the
Company's market areas. There can be no assurance that the jai-alai industry
will improve significantly, if at all, in the future. Because the Company's
jai-alai business is tied directly to many, if not all, of the factors which
influence the jai-alai industry as a whole, a players strike or the enactment of
unfavorable legislation could have an adverse impact on the Company's
operations.
All Florida permit-holders are authorized to engage in Inter-Track Wagering ("ITW") year-round, subject to certain restrictions, all of which are not discussed herein. ITW is permitted on thoroughbred racing, harness racing, dog racing, and jai-alai. ITW is permitted at a pari-mutuel facility so long as at least one facility in Florida is providing live pari-mutuel performances on any such day that ITW is offered.
Pursuant to the statute and subject to certain restrictions, Florida jai-alai frontons and dog racing tracks may receive broadcasts of dog races or jai-alai games conducted at tracks or frontons located outside of Florida ("out-of-state host facilities"). Among the restrictions applicable to such broadcasts, however, are the following: (1) that the receipt of out-of-state broadcasts by the Florida fronton or dog racing track (the "Florida guest facility") only be permitted during the Florida guest facility's operational meeting, (2) in order for the Florida guest facility to receive such broadcasts, the out-of-state host facility must hold the same type of class of pari-mutuel permit as the Florida guest facility, i.e., horse to horse, jai-alai to jai-alai, etc., (3) the guest facilities may not accept wagers on out-of-state races or games that exceed 20% of the total races or games on which wagers are accepted live. All wagering placed on out-of-state ITW broadcasts is included in the amount taxed pursuant to the Pari-Mutuel Law.
Each of the Frontons, as a guest facility when it participates in ITW, is entitled by statute to a minimum of 7% of the total contributions to the pari-mutuel pool when the ITW broadcast is by a host horse racing facility with the races run in Florida. Each of the Frontons is eligible by statute to receive a minimum of 5% of the total contributions to the pari-mutuel pool when the ITW broadcast is by facilities other than horse racing facilities (greyhound and jai-alai). In addition, each of the Frontons is authorized to receive admissions and program revenue when conducting ITW.
Card Room & Dominoes Development
Miami Jai-Alai opened a card room in 1997, and Ft. Pierce opened a card room on
April 28, 2008. Poker is played at the Miami and Ft. Pierce Jai-Alai, and
dominoes are played at the Miami Jai-Alai.
Card rooms are regulated by the Florida Division of Pari-Mutuel Wagering ("DPMW"). Permitted games are limited to non-banked poker games and dominoes. Florida state taxes are 10% of revenue and 4% of the revenues are paid to the jai-alai players.
1. Card rooms may operate on any day for a cumulative amount of 18 hours on week days and 24 hours on weekend and holidays;
2. "Authorized games" means a game or series of games of poker or dominoes; approved by the Division of Pari-Mutuel Wagering;
3. "Tournament" means a series of games that have more than one betting round involving one or more tables and where the winners or others receive a prize or cash award;
4. Card room operators may award giveaways, jackpots, and prizes to a player who holds certain combinations of cards specified by the card room operator;
5. Card rooms may conduct games of poker, with all games approved by the Division of Pari-Mutuel Wagering, State of Florida.
Development of Slot Machines
On May 12, 2011, the Company received a license from the State of Florida to
begin Class III-"Vegas Style" slot machine operations at Miami Jai-Alai. The
Company broke ground Wednesday, May 18, 2011 to celebrate construction of the
casino addition at Miami Jai-Alai. Miami Jai-Alai will undergo substantial
renovations featuring a casino floor accommodating an initial 1,000 slot
machines, new card room featuring poker and dominoes, and all new food and
beverage facilities. The main auditorium will also receive upgrades making it
more conducive for entertainment as well as the most exciting live jai-alai
action in the world. The facility will have approximately 1,500 surface parking
spaces. Development is expected to last between eight and nine months. Miami
Jai-Alai will be able to operate:
· up to 2,000 machines
· have ATM machines at the facility
· hours of operation during the week can be up to 18 hrs a day and 24 hours a day on weekends.
RESULTS OF OPERATIONS -- THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED WITH THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2010
Revenue has decreased during the third quarter and nine months ending September 30, 2011, compared to the same period ending September 30, 2010. Miami Jai-Alai is undergoing construction for a new casino, and due to the construction at the facility, Miami had to close their card room on March 27, 2011, and Miami did not offer live jai-alai during the month of September. This resulted in lower attendance and contributed to the overall lower revenue. The Company did see an increase in handle and revenue for live jai-alai for the quarter and nine months ending September 30, 2011, compared to the same period ending September 30, 2010. During 2010, Miami did not offer live jai-alai at their facility due to ongoing construction and the players were moved to Ft. Pierce. Ft. Pierce conducted live jai-alai from May 7, 2010 through August 28, 2010. Miami has stronger support for live jai-alai and therefore it is reflected in the higher handle and revenue for the quarter and nine months ended September 30, 2011. Ft. Pierce conducted a full schedule of Inter-Track Wagering ("ITW") for the quarter and nine months ending September 30, 2011 and September 30, 2010. Miami offers limited ITW product due to blackouts imposed because of its close proximity to other South Florida pari-mutuels. During the quarter and nine months ended September 30, 2011, Ft. Pierce operated a cardroom and Miami's cardroom was closed on March 27, 2011. Both facilities operated a card room, with the Miami location also offering dominoes in its' card room during the nine months ended September 30, 2010.
Handle Analysis for the Quarter Ended September 30, 2011 compared to the Quarter
ended September 30, 2010
Total handle (amount of money wagered) for the three months ended September 30,
2011 was $4,996,624 compared to $6,374,871 for the three months ended September
30, 2010. Of the $4,996,624, $2,777,150 was from live jai-alai and $2,219,474
was from inter-track wagering. This compared to the total handle of $6,374,871
of which $2,314,635 was from live jai-alai wagering and $4,060,236 was from
inter-track wagering. Guest handle continues to decline, with Miami offering
only interstate transmission data, and there is limited simulcast at Ft.
Pierce. Live handle increased due to scheduling of live jai-alai at Ft. Pierce
and Miami.
Total Pari-Mutuel Revenues for the Quarter ended September 30, 2011 compared to
Quarter ended September 30, 2010
Pari-mutuel revenues (net of state pari-mutuel taxes) for the quarter ended
September 30, 2011 were $620,367 compared to pari-mutuel revenues of $714,722
the same period in 2010, a 13% decrease. Revenues for the quarter ended
September 30, 2011 ($620,367) consisted of $416,349 in live jai-alai, and
$204,018 for inter-track wagering. This compares to $714,722 for the quarter
ended September 30, 2010, of which $364,524 from live Jai-Alai wagering and
$350,198 from Inter-Track Wagering. Revenues for live jai-alai were higher due
to the different scheduling at Miami Jai-Alai and Ft. Pierce. ITW revenues
are down due to a decline in attendance and limited simulcast options at
Ft.Pierce.
Card Room Revenue for the quarter ended September 30, 2011 compared to the
quarter ended September 30, 2010
Card room Revenue for the three months ended September 30, 2011 was $783,863
compared to $1,105,754 or the three months ended September 30, 2010 a $321,891
decrease. Miami's cardroom was closed during the quarter ended September 30,
2011.
Admissions for the quarter ended September 30, 2011 compared to the quarter
ended September 30, 2010
There was no admission income for either facility during the third quarter ended
September 30, 2011 and September 30, 2010.
Food, beverage and other income for the quarter ended September 30, 2011 compared to the quarter ended September 30, 2010 Food, beverage and other income for the quarters ended September 30, 2011 and September 30, 2010 were $106,624 and $181,190, respectively. The decrease of $74,566 is primarily due to decreased concession and bar revenues sales due to fewer patrons at the facilities, due in part to construction and Miami and Miami offered no live product in September, 2011.
Real Estate Revenue for the quarter ended September 30, 2011 compared to the
quarter ended September 30, 2010
There were no real estate sales for the quarters ended September 30, 2011 and
September 30, 2010.
Total Operating Revenue for the quarter ended September 30 2011 compared to the
quarter ended September 30, 2010
Total Operating Revenue for the quarters ended September 30, 2011 were
$1,510,854 compared to $2,001,666 for the same period in 2010, a decrease of
$490,812. The Company has seen the attendance decline over the years plus the
Miami cardroom was closed during the quarter, as well a no live jai-alai or host
ITW revenue in September, 2011.
Operating Expenses for the quarter ended September 30, 2011 compared to the
quarter ended September 30, 2010
The Company's operating expenses for the three months ended September 30, 2010
were $1,774,590 compared to $2,628,168 for the same period in 2010. The
components of the Company's operating expenses and their comparison to the third
quarter last year are as follow: Player costs, salaries, benefits, and support
staff, represent a significant portion of operational expenses. Player costs for
the quarter ending September 30, 2011 and September 30, 2010, were $494,227 and
$427,253 respectively. Player costs were higher due to higher prize
money. Rental and service costs for totalizator wagering equipment and
satellite receiving/television equipment also represent a significant portion of
operating expenses. These expenses totaled $147,194 for the quarter ended
September 30, 2011, compared to $201,487 for quarter ended September 30, 2010.
The components of the 2011 wagering equipment and expenses were $34,458 in ITW
tote, interface, and telephone charges; $33,200 in totalizator equipment rental;
$28,050 in satellite charges and $51,486 in camera/television rental. The
components of the 2010 wagering equipment and expenses were $55,174 in ITW tote,
interface, and telephone charges; $61,784 in totalizator equipment rental;
$28,600 in satellite charges and $55,949 in camera/television rental. The
totalizator equipment rental is lower due to savings from a renegotiated
contract. Utilities expense totaled $116,235 and $124,702 respectively, for the
quarter ended September 30, 2011 and September 30, 2010. Operating expenses
(including payroll costs) for the cardroom, bar, program, souvenir, parking, and
concessions costs were $442,861 and $687,373 for the quarters ended September
30, 2011 and September 30, 2010, respectively. A large portion of the decrease
is attributed to the Miami cardroom being closed during the quarter ended
September 30, 2011. Operating payrolls for mutuels, maintenance, admissions,
office, security and contract labor costs totaled $366,454 and $512,581 for the
quarters ended September 30, 2011 and September 30, 2010, respectively. Of the
$366,454, $84,257 was mutuels payroll, $109,601 was maintenance payroll, $3,683
was admissions payroll, $45,148 was office payroll, and $123,785 was security
payroll. This compares to $512,581 for the three months ended September 30,
2010, of which $117,144 was mutuels payroll, $127,006 was maintenance payroll,
$300 was admissions payroll, $42,723 was office payroll, and $225,408 was
security payroll. Security was lower due to reduced staffing, and Ft. Pierce had
reduced staffing in mutuels. Maintenance and cleaning expenses for the quarter
ended September 30, 2011, totaled $65,745 compared to $67,034 for the same
period in 2010. Advertising expense for the quarter ended September 30, 2011,
totaled $6,783 compared to $70,798 for the quarter ended September 30, 2010, a
$64,016 decrease.
General And Administrative Expenses for the quarter ended September 30, 2011 compared to the quarter ended September 30, 2010 The Company's general and administrative expenses for the quarters ended September 30, 2011 and September 30, 2010 were $4,433,757 and $1,273,309, respectively, an increase of $3,160,448. Significant categories of the Company's general and administrative expenses for the third quarter of 2011 compared to the third quarter of 2010 are as follows: Executive salaries . . .
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